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While the rebels make a base camp in the foothills

Group of Seven meetings have been matched by ‘People’s Summits’ for close to a decade, but only now has a group decided to host an alternative Davos in the foothills of the World Economic Forum.

The Paris-based Association for the Taxation of Financial Transactions for the Benefit of Citizens (ATTAC) has started sending out invitations for its autre Davos to challenge the “cult of the market”.

As its name suggests, the ATTAC is championing one specific method for combating the globalisation contagion: a ‘Tobin tax’.

Back in 1972, a year after the WEF was set up, Nobel prize-winning Princeton University economist James Tobin proposed an international levy on currency transactions deemed to be speculative in nature. Only currency that was bought or sold without the specific purpose of carrying out a physical trade in goods would be hit with a tax worth 0.25% to 1% of the total transaction.

In theory, this would discourage purely speculative trading in currency since it would wipe out the tiny profit margins which make it worthwhile for banks to carry out the business. Any government wanting to join the International Monetary Fund or the World Bank would have to collect the tax as a condition of membership.

“In France, the Tobin tax has entered very much into the political debate,” says Isabelle Bourboulon, coordinator for the ATTAC in Paris. “We wanted to organise a week of ideas that would challenge the neo-liberal consensus.”

When Tobin raised the idea, it met with little enthusiasm. He was speaking only a year after the US had abandoned the Bretton Woods managed exchange-rate system, which had been operating since the end of the Second World War. Floating currencies were all the rage.

The Eighties and Nineties saw the demise of capital controls throughout the developed world and within the European Union. Attempts to raise the issue at the G7 summit in Halifax, Canada, a few years ago failed.

Today, daily turnover in the foreign exchange market tops 1 trillion euro and it does not respect borders, as the out-spoken Malaysian Prime Minister Mahathir Mohamad has been only to happy to point out. When international investors pulled out of the Malaysian market in 1997, Mahathir called them “bucaneers” and “gunslingers” and even detected an international Jewish conspiracy to undermine an Islamic state.

Of course, the left-wing supporters of the Tobin tax do not speak the same language as Mahathir, but their views are informed by the same idea that currency speculation is a form of irrational ‘casino economics’.

To them, George Soros, the Hungarian/American who runs the Manhattan-based 15-billion euro Quantum Fund, personifies this new international economic piracy.

The man who famously bagged 1 billion euro in 1992 and less famously lost twice that amount when the Russian rouble was devalued last year is seen as the perfect reason for a transactions tax against ‘hedge funds’. These funds, which are pooled investments for trading in securities, have become notorious for exacerbating exchange rate volatility.

To free-marketers, the crashes in Thailand, Malaysia, Indonesia and South Korea and the banking collapse in Japan were accidents waiting to happen. The markets took their time, but they finally spotted the flaws in these countries – ranging from excessive debt to cronyism to an uncompetitive exchange rate – and punished them. What actually happened was a sign of markets working and a Tobin tax would simply make it easier for bad governments to get away with incompetence.

To the ATTAC and its supporters, the new world order, far from making it impossible to introduce a currency tax, makes such a levy more important.

The group argues that speculative run-ups followed by crashes serve to discourage productive investment and consequently cut the sum of all income in the economy (aggregate income). Moreover, companies will not want to plough investment into their business if returns from property and equity are so much higher.

The ATTAC has convened a seminar in Paris as part of autre Davos, where Canadian economist Alex Michalos will present his idea of ‘good taxes’. He advocates a 0.05% tax which would, he believes, discourage export-led development and therefore create an environmentally-sustainable world economy.

Given that a 0.05% tax on foreign-exchange transactions could possibly net billions of euro, the ATTAC has put little thought so far into what it would like to do with the proceeds.

“The question of what we would do with the receipts has not been addressed yet,” said Bourboulon. “But the general idea is that the receipts would be used to fund the United Nations, for environmental protection, for peace or for education and health.”

The rhetoric spoken by some members of the G7 about a “new financial architecture” since the Asian crisis and the collapse of the Long-Term Capital Management hedge fund may have given some hope to the ATTAC.

However, given how long it has taken to even consider a minimalist approach to combating “harmful tax competition” at the Organisation for Economic Cooperation and Development, its supporters should not hold their breath.